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Living Management Consulting                 Project            FULL-TIME MBA CLASS OF 2013                       Team B9 ...
Business Strategy - Proposed                               Produce Ethanol                                and Butanol in  ...
Selection Criteria      Supply and demand in major countries      Types of industries/companies to target      Current ...
EthanolGlobal market    Market size:           22 bio gal/year (2010)    Product average price: 2.4 USD/gal    Annual g...
Ethanol – Focus on China                                                     China               16                       ...
Ethanol - Prospects in China      Currently China and India using E10 blend (90% fuel, 10% Ethanol)      Blend rate of E...
ButanolGlobal market    Market size:           960 mil gal/year (2010)    Product average price: 4.5 USD/gal    Annual ...
Butanol - Advantages as FuelCan be upgraded to aviation jet biofuel – 94 bio gal/year (by 2020)Can be blended with diese...
Butanol – Focus on China                                       China60%            53%                                    ...
Butanol - Supply and Demand in China*            * OXO Market Supply and Demand Forecast & Investment Economic Analysis   ...
Porter’s 5 forces analysis                                             Competition from substitutes  Low risk – for Chemic...
Critical Reasoning Business Model                       Sell technology                 Build own plant(s)    Short term  ...
Plan of Action                                          Ethanol                                                           ...
Location Plant location: Huangdao Why?   – Industrial companies   – Oil pipeline network   – Railway network   – Close t...
Ethanol – Profit Projection                                              Ethanol Profit Projection per gallon             ...
Butanol – Project Prediction                                  Butanol Profit Projection per gallon                      3....
Profit per year / Investment Costs                                              Total Operating Profit                   2...
How to start?Partnerships7/10/2012                       18
Partnerships Benefits      Entering Chinese market efficiently      Learning know-hows of business in China      Interm...
Long term options On the long term there are  different options:1. Upgrade production China2. Diversify to other countrie...
Upgrade production China                                          2013             2018      Ethanol                 6.5 m...
Thanks for your attention                        Team B9                       Chi-Yang Liu                     Alexey Nik...
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LMCP Final Presentation - LinkedIn edit

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LMCP Final Presentation - LinkedIn edit

  1. 1. Living Management Consulting Project FULL-TIME MBA CLASS OF 2013 Team B9 Chi-Yang Liu Alexey Nikolaev Hugo van Oort Nishit Tanna Hugo Valdivia7/10/2012 1
  2. 2. Business Strategy - Proposed Produce Ethanol and Butanol in China Preference of Ethanol and Why China Business model Future plans Butanol over others7/10/2012 2
  3. 3. Selection Criteria Supply and demand in major countries Types of industries/companies to target Current market size and growth scope of these industries Competitor overview in various countries Infrastructural development of country Government support and concessions7/10/2012 3
  4. 4. EthanolGlobal market  Market size: 22 bio gal/year (2010)  Product average price: 2.4 USD/gal  Annual growth rate: 9% (future 5 years)Forecast  2015: 29 bio gal/year World largest manufacturers Production capacity (bio gal/year) Archer Daniels Midland 1.7 POET 1.6 Valero Energy Corp 1.17/10/2012 4
  5. 5. Ethanol – Focus on China China 16 13.9 (43% self sufficiency) 14 13.1 1.6 1.50 12 1.4 10bio gal/year 1.2 8 6.9 1 bio ga/year 6.3 6 0.8 0.65 0.6 4 0.4 2 1.5 1.1 0.65 0.24 0.2 0 0 China India USA Brazil Production Consumption Production Consumption China’s largest manufacturers Production capacity (mil gal/year) Jilin Fuel Ethanol Co. 163 Henan Tian Guan Fuel Ethanol Co. 146 7/10/2012 5
  6. 6. Ethanol - Prospects in China Currently China and India using E10 blend (90% fuel, 10% Ethanol) Blend rate of Ethanol expected to increase in future • Brazil using E25 • US working on implementing E15 • India & China working on implementing E20 Increase in crude oil consumption • China consumes 105 bio gal/year growing @ 9% yearly • India consumes 36 bio gal/year growing @ 8% yearly Less competition compared to US, Brazil, as not many market leaders No competition using cyanobacteria, hence could provide market edge Government subsidies expected in India & China China government initiative to work on non food crop ethanol production No shortage of raw materials as plenty of CO2 and sunlight available7/10/2012 6
  7. 7. ButanolGlobal market  Market size: 960 mil gal/year (2010)  Product average price: 4.5 USD/gal  Annual growth rate: 4.8% (future 5 years)Forecast  2015 – 1,247 mil gal/year  2020 – 1,381 mil gal/year World largest manufacturers Production capacity (mil gal/year) BASF 212 Dow Chemical Company 172 Oxea Group 917/10/2012 7
  8. 8. Butanol - Advantages as FuelCan be upgraded to aviation jet biofuel – 94 bio gal/year (by 2020)Can be blended with diesel or biodiesel up to 40%Can be blended with gasolineHas an energy value of 110,000 BTU/gal, similar to gasoline (114,000) and muchhigher than Ethanol (76,100)Has lower emissions: reduces hydrocarbon emissions by 95%; carbon monoxide to0.01%; and oxides of nitrogen by 37%Can be shipped via existing fuel pipelines rather than by tanker truck or rail becauseit is non-corrosive and less susceptible to separation in waterCan be used in existing automotive engine technologies with less need formodification, replacing gasoline7/10/2012 8
  9. 9. Butanol – Focus on China China60% 53% (45% self sufficiency)50% 400 37240% 38% 31% 30030% 22% 20020% 18%19% 168 13% 10010% 3%0% 0 China N.A. W.E. Other Production Consumption (39% of global market) Production Consumption China’s largest manufacturers Production capacity (mil gal/year) PetroChina 64 Sinopec 557/10/2012 9
  10. 10. Butanol - Supply and Demand in China* * OXO Market Supply and Demand Forecast & Investment Economic Analysis Average annual growth rate in 2000-2010 Production: 7% Consumption: 12%7/10/2012 10
  11. 11. Porter’s 5 forces analysis Competition from substitutes Low risk – for Chemical application High risk – for Fuel application As chemical – probably no substitutes As fuel –price sensitivity High risk – commodity product Bargaining power of buyers Competition within an industry Bargaining power of Price sensitivity – commodity suppliers Few powerful companies product Excess capacity and This risk can be mitigated by: Cyanobacteria supplier exit barriers Vertical integration with External supplier CO2 Cost conditions - profitability issue consumers risk Differentiation (e.g. high quality) Low risk – many CO2 Quite high risk – powerful competitors external suppliers Treat of new entrants This risk can be mitigated by barriers: Economies of scale Absolute cost advantages Middle level of risk – different Capital requirements barriers Product differentiation Access to distribution channels Government and legal barriers Retaliation by established producers7/10/2012 11
  12. 12. Critical Reasoning Business Model Sell technology Build own plant(s) Short term 1. No investment needed 1. Big investments needed 2. Easy to target potential 2. Need to find partner customers 3. Need for a lot of market 3. Differentiation from research and sales to find other producers all possible clients 4. No set-up time 4. Longer set-up time 5. Less revenue possibilities 5. High cost, revenue slowly increases Long term 1. Risk of copycats 1. Possibility to sell company 2. Expiration of patents 2. Create long term 3. Technology may become sustainable growth obsolete 3. Possibility of diversification 4. Possibility for scaling up7/10/2012 12
  13. 13. Plan of Action Ethanol Butanol 1600 1500 850 400 372 204 1400 350 1200 300millions of gallons millions of gallons 1000 250 800 200 650 168 600 150 400 100 200 50 0 0 Chinas demand Chinas production Potential free Chinas demand Chinas production Potential free market market Start to success Target capacity Ethanol: Target capacity Butanol: 6.5 mil gal 3.2 mil gal7/10/2012 13
  14. 14. Location Plant location: Huangdao Why? – Industrial companies – Oil pipeline network – Railway network – Close to seaport – SPR: “Strategic Petroleum Reserve” – Chinese Petroleum University – Possible Government subsidies: “economic development zone”7/10/2012 14
  15. 15. Ethanol – Profit Projection Ethanol Profit Projection per gallon 3 2.65 1.8 2.5 2 USD/gallon 1.5 0.85 1 0.5 0 Current sales price Approx cost Operating profit Total operating profit: 6.5 mil gal*1.8 USD/gal = 11.7 mil USD7/10/2012 15
  16. 16. Butanol – Project Prediction Butanol Profit Projection per gallon 3.8 2.6 4 3.5 3 2.5 2 1.5 1.2 1 0.5 0 Current sales price Approx cost Operating profit Operating profit: 3.2 mil gal*2.6 USD/gal = 8.3 mil USD Butanol market: US$1 billion market in China7/10/2012 16
  17. 17. Profit per year / Investment Costs Total Operating Profit 25 8.3 20.0 20 15 Millions 11.7 10 5 0 Profit Ethanol Profit Butanol Total Profit Capital Expenditure: between 4 and 6 USD/gal (benchmark) 9.5 mil gal*4USD/gal = 38.1 mil USD 9.5 mil gal*6USD/gal = 57.1 mil USD Pay back period: between 2 and 3 years7/10/2012 17
  18. 18. How to start?Partnerships7/10/2012 18
  19. 19. Partnerships Benefits Entering Chinese market efficiently Learning know-hows of business in China Intermediary to communicate with Government Potential funding for initial plant set-up7/10/2012 19
  20. 20. Long term options On the long term there are different options:1. Upgrade production China2. Diversify to other countries with same concept – India for Ethanol3. Sell company if there is “not to refuse” offer7/10/2012 20
  21. 21. Upgrade production China 2013 2018 Ethanol 6.5 mil gal 14.9 mil gal Market share 1% 1.5% (expected) Butanol 3.2 mil gal 5.2 mil gal Market share 2% 2.4% (expected) Overall market growth China Ethanol 9% Butanol 5%7/10/2012 21
  22. 22. Thanks for your attention Team B9 Chi-Yang Liu Alexey Nikolaev Hugo van Oort Nishit Tanna Hugo Valdivia7/10/2012 22

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